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The Sugar Daddy Game: How Wealthy Investors Change Competition in Professional Team Sports

Author

Listed:
  • Markus Lang
  • Martin Grossmann
  • Philipp Theiler

Abstract

Professional sports leagues have witnessed the appearance of sugar daddies - people who invest enormous amounts of money in clubs and become their owners. This paper presents a contest model of a professional sports league that incorporates this phenomenon. We analyze how the appearance of a sugar daddy alters competitive balance and social welfare with respect to a league with purely profit-maximizing club owners. We further show that the welfare effect of revenue sharing in a sugar daddy league is ambiguous and depends on the degree of redistribution and on whether the sugar daddy invests in a small or a large club.

Suggested Citation

  • Markus Lang & Martin Grossmann & Philipp Theiler, 2011. "The Sugar Daddy Game: How Wealthy Investors Change Competition in Professional Team Sports," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 557-577, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201112)167:4_557:tsdghw_2.0.tx_2-l
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    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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